381A Restriction of loss relief in certain cases

Summary

This section (inserted by section 18 of the Finance Act 2013) modifies and limits the use of section 381 in certain circumstances. The summary details are as follows:

• It applies to an individual in any particular year, if less than 50 per cent of his/her total income (for USC purposes) for that year and the 2 previous years derives from dealing in or developing land.
• It applies as respects losses created by trading deductions on foot of interest payable on loans taken out to acquire land held as trading stock as well as deductions attributable to any write-down of the value of such land in an individual’s accounts.
• Loss relief, under section 381, may not be claimed in respect of any such losses in the future, unless the interest in question has actually been paid or the decline in land value has actually been realised by way of a disposal prior to the claim being made.
• The normal deductibility of the interest expense or the write-down in land value in the trading accounts is unaffected by these new measures.
• In order to effect the proper functioning of this new section, provision is made to set an order in respect of which deductions and payments are deemed to be made.
• This provision applies to any interest expense incurred or any write-down in land value, which takes place on or after 13 February 2013.

Details

(1) “aggregate income for the tax year” has the same meaning as in section 531AL i.e. income for the purposes of universal social charge.

“specified loss”, in relation to a tax year and a specified trade, means any loss or part of a loss:

• which relates to interest on debt incurred to finance the purchase or development of land held as trading stock, and/or
• which relates to the write-down in value of such land.

“specified trade” means a trade of dealing in or developing land or any activity, which is treated as such by virtue of section 640(2)(a), to which the rules contained in Chapter 1 of Part 22 apply.

“specified trader” in relation to any particular tax year means an individual whose income from the specified trade for that tax year and the preceding two tax years is less than half the individual’s aggregate income for the same period.

(2) A refund of tax arising from a claim for relief under section 381 which relates to a specified loss will not be made:

• where the loss has arisen as a result of a deduction for interest which has not been paid prior to the claim being made, and/or
• where the loss has arisen due to the write-down of the value of land held as trading stock where there has been no disposal of the land prior to the claim being made.

(3) Where a loss is realised by virtue of a disposal of land held as trading stock to a connected person, no loss relief will be available under section 381.

(4) Interest, which has been paid, will be treated as paid in respect of an earlier year in priority to a later year for the purposes of arriving at the amount of a specified loss in a particular tax year.

(5) Subsection (5) provides that for the purposes of determining the amount of a specified loss in a particular tax year a deduction for interest is allowed after all other deductions and a deduction for the write-down of the value of land is allowed immediately prior to the deduction for interest.

Relevant Date: Finance Act 2019